Chain of Trust The jewelry industry begins embracing blockchain technology

Imagine a common scenario: A woman visits a jewelry retailer or contacts a designer to shop for a special piece for herself. Before making the purchase, she starts to ask questions: Where did the diamond or gemstone come from? Were the materials responsibly sourced? How did you or your company obtain it?

Meet today’s contemporary jewelry consumer, who wants ethically sourced jewelry and, more importantly, to know the story behind it. She joins the vast majority of jewelry buyers, according to a 2015 Nielsen report, which said that almost 75 percent of global Millennials and 66 percent of all consumers are willing to spend more on a product if it comes from a sustainable brand. The jewelry industry is embracing this trend, with more and more stakeholders committing to practices that uphold human rights, labor rights, environmental im-pact, mining practices, and more.

And that’s a good thing because in this age of computers and global access to information, consumers have come to expect that lineage of information prior to purchasing. As technology catches up and is applied to the jewelry industry, it is getting increasingly more likely that those consumers will not only be able to see the supply chain more clearly, but know it is credible and verified. And the way they’ll likely be able to do that? Blockchain technology.

What Is Blockchain?

Blockchain technology is emerging and it’s going to make a significant impact on the jewelry industry, say experts. It will eventually allow those in the industry to track diamonds, gemstones, and metal—virtually everything involved in the making of jewelry—throughout the supply chain.

While a complex system, blockchain is really appropriately named. Simply put, it is a chain of blocks of data that are essentially a shared database or digital ledger that is stored across multiple computer networks. Think of it from the starting point: a piece of information or record is uploaded. It has a digital mark or signature on it. Then the record is validated throughout the network (or “nodes”) as it moves through the process using consensus algorithms. If it passes the validation, the record is then timestamped and embedded into a block of information. Each block contains a hash (a digital fingerprint or unique identifier) and the hash of the previous block. The previous block hash links the blocks together, creating an immutable chain.

This technology has been around since 2008, but it generated more headlines when it was used for Bitcoin and other cryptocurrencies. Users liked that the technology allowed them to trade funds directly with each other without a bank or middleman charging fees and taking time to conduct the transactions. Users also were enthused about the idea of a secure network that exists in numerous places and can’t be hacked or forged.

“Blockchain and the jewelry industry were made for each other,” says Anne Miller, a Massachusetts-based business transformation consultant. “Provenance and responsible sourcing are critical industry challenges that blockchain can address. With blockchain, you have shared access to data, and when you get to the data, it is accurate. As transactions move from point to point, you know who you are engaging with, that the thing is what it says it is, and that what’s supposed to happen is happening. All of this is moving in real time—cutting out friction, delays, and intermediaries.”

Technology companies are taking notice. IBM has emerged as a powerhouse in blockchain technology, developing projects across a number of industries, from food sourcing to healthcare to jewelry. It began a collaboration with major diamond and jewelry companies from around the world on an initiative called TrustChain®. The consortium began working in 2017 with the goal to track and authenticate diamonds, precious metals, and jewelry at all stages of the global supply chain, from mine to retailer. This effort combines the strength of IBM technology with wide expertise in the jewelry industry. Involved in the project are the Richline Group, Underwriters Laboratories, LeachGarner, Helzberg Diamonds, and Asahi Refining.

Blockchain Mark Hanna

As the chief marketing officer for the Richline Group, Mark Hanna was a founder of TrustChain®, which makes sense given his company’s commitment to social conscience. Through the Richline Responsible Initiative, the company says they are committed to “ethical best practices and a fully responsible supply chain as well as verified trust.”

“It is about the 5Ts for suppliers and retailers to provide for consumer ethical concerns: track, trace, transparency, truthful, and trusted,” Hanna says. “Socially responsible sourcing is imperative in the jewelry industry. The blockchain protocol/platform provides the technical system to optimize a chain of custody documentation inclusive of every participant in a product’s journey.”

Hanna says unlike cryptocurrencies, TrustChain® is not an open, decentralized system. TrustChain® uses a platform that is private, and potential users need permission to join the network. Only those authorized may contribute, and they will have been fully evaluated for best practices with third-party confirmation (such as being a certified member of the Responsible Jewellery Council). Hanna says interactions are guided by versions of a “Smart Contract,” which includes all the participant-to-participant requirements of the product, plus all the ethical confirmations compulsory by TrustChain®. And since the data within the chain is transparent to every participant throughout the chain, there would need to be multiple collusions to create incorrect data on essential elements.

Another major blockchain initiative within the industry involves De Beers, which conceived Tracr in 2017 and rolled out its pilot last year in a comprehensive “mine-to-finger” traceability solution for the entire diamond industry. It joined with Russian miner, Alrosa, and five diamond manufacturers, in addition to Signet Jewelers Ltd. as well as Asia’s Chow Tai Fook.

David Bouffard, vice president corporate affairs of Signet Jewelers and chair of the Responsible Jewellery Council, says it was a natural decision to join this effort. “When De Beers approached us to participate in a pilot for their Tracr initiative, we did not hesitate. The potential for blockchain to help strengthen the integrity of the global diamond supply chain is beneficial to both Signet and the industry as a whole.”

Tracr works by having industry participants go through a KYC (Know Your Customer) process. They connect to the platform and create their unique identity. Then, for example, they can upload a digital certificate of a diamond, which has primary and secondary information in it (such as cut, clarity, grading certificates, invoices, etc.). All data is encrypted and stored in a blockchain. This now becomes a historical ledger that is secure and en-crypted, but available to users.

In addition to tracing and tracking precious metals and diamonds, blockchain technology is also being put to use with colored gemstones. Gübelin Gem Lab launched the Provenance Proof Blockchain during the 2019 Tucson gem shows. Its goal is to provide the industry with a tool that enables the tracing of specific gemstones along the supply chain. Building the system is Everledger, a London-based company that was created in 2015 and says it became the first company to start tracking the movement of diamonds in 2017 via its Diamond Time-Lapse Protocol. Rounding out the team is the mining company, Fura Gems, which will help to develop and test this new system.

According to the initiative, Provenance Proof Blockchain is suitable for any type of gemstone. All processes, including registration and uploading data, can be done on a smartphone, making it inclusive for all types and sizes of stakeholders, from artisanal miners and large cutters to gem labs and retailers.

What Comes Next?

While all these initiatives are on the road to qualified success, there are some twists and turns ahead. Since this technology is still developing, experts say there are still many unknowns, and the technology continues to evolve at a rapid pace.

“The technical challenges are primarily the lack of interoperability between various blockchain protocols,” says Hanna. “This eliminates the potential for far more participants in the chain due to different protocols.”

Interoperability issues can add costs and delays in processing, not to mention the inconvenience of stakeholders having to be active participants in more than one initiative. However, experts believe that as new innovations come on board, interoperability issues will be resolved.

Bouffard says the complexity and diversity of global supply chains across multiple minerals and geographies are the biggest challenges facing initiatives. “We work to be inclusive and help our supply chain partners evolve and improve,” he says. “We try to leverage the benefits from partners from whom we source larger diamonds, where tracking and tracing is already underway, and Tracr can be more readily applied. The biggest challenge is in melee, which represents the vast majority of Signet’s diamond supply chain. Developing applications of Tracr for melee will be of tremendous benefit to Signet and the industry.”

There’s also an impact to core business strategies and procedures, as well as legal issues, adds Miller. “It changes policies, standards, governance, procedures, etc.,” she says. “In addition, legal implications are still being understood and worked out. The distributed nature of blockchain introduces new challenges, for example, around jurisdiction, service levels and performance, liability, intellectual property, data privacy, compliance, and more.”

Joining an Initiative

Companies thinking about wading into a blockchain initiative should educate themselves first, say experts. There may be no fee to join these initiatives, but companies have to be responsible for their own integration of their systems and there can be transaction fees.

“Companies would be well-served to investigate what is available rather than embark on their own system,” notes Bouffard. “It’s important that these efforts take into account the realities and practicalities of the global supply chain, as well as existing best practices, so as not to be extraordinarily burdensome or exclusive.”

Remember it will take some time as well, Bouffard adds. “The application of blockchain to the minerals supply chain remains in its nascent stages; we will need to allow time for significant learning before we have a clearer view of the most appropriate ways forward, especially for the many small or medium-size companies that represent our global supply chain.”

Miller agrees and says full adoption of this technology is still years away. “Gartner Inc., a leading research and advisory company, estimates a 5- to 10-year time-scale before blockchain enters the mainstream. Similar to the internet, there will be a shakeout of providers and the full transformation blockchain can enable will take time.”

Hanna believes that blockchain technology will make its impact eventually, especially as there is increasing pressure for documented proof of ethical practices, which he thinks will someday turn into an industry-wide mandate.

“We firmly believe in the future potential of blockchain,” he says. “It may be over-hyped in the short-run but very underestimated for the longer term.”

Will the use of blockchain technology affect costs of goods? Hanna says initially there may be incrementally higher costs as systems are constructed and people are trained. The belief over time is that efficiencies throughout the full procurement process will offset those initial costs.

Despite any challenges, Hanna says the use of blockchain technology will become essential in telling the full story about any piece of jewelry. “The added benefits of the TrustChain® are in the expanded and demonstrated story of the full path of the product,” says Hanna.

Bouffard looks forward to the day blockchain is commonplace. “For us, blockchain is about industry, not items. We are working toward a time in which blockchain will become the technology most used to verify responsible supply chains and all the companies within that chain. Over time, Signet believes that responsible sourcing will become a normal part of doing business—not a bolt-on afterthought for when you have time, but rather a core business function. Fine jewelry customers around the world expect nothing less.”